Stock Market Terms, Definition, A-Z

AUTHORISED CAPITAL The authorised capital of a company (sometimes referred to as the authorised share capital or the nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its constitutional documents to issue to shareholders. Part of the authorised capital can (and frequently does) remain unissued.The part of the authorised capital which has been issued to shareholders is referred to as the issued share capital of the company. AGM or Annual General Meeting Meeting held once a year where the directors of the company report to the shareholders on the years performance and nay vacancies in the board of directors are filled by shareholders consent. The chief of the company comments on the future outlook of the company, and answers questions from shareholders. Notice of the meeting, along with a copy of the ANNUAL REPORT (or an abridged version of it) has to be compulsorily sent to every shareholder, who may send a proxy to attend on his behalf. Shareholders can insist that all resolutions on company policy be voted upon by the equity shareholders of the company. This meeting also receives the auditors report, appoints auditors, and fixes their remuneration. Balance Sheet Statement of the financial position of a company on a particular date, showing the nature and amount of a companys assets and liabilities on a particular date, usually the end of the accounting year. The assets include fixed assets (GROSS BLOCK less DEPRECIATION), investment, current assets (which include INVENTORIES, sundry debtors, cash and bank balance), and loans and advances. The liabilities include shareholders fund (equity capital plus reserves), loan funds (secured and unsecured loans) and current liabilities and provisions. The assets and liabilities must balance. Bear Market Prolonged period of falling share prices, dominated by selling pressure in the marketplace, brought about by BEARS, or adverse economic or political factors, e.g. a change in the industrial policy of the government, imposition of price control, drought or flood, free imports, etc., or a change in the government, income tax raids, etc. Book Closure(RD) Before a company declares a dividend or issue bonus or rights shares, it closes, its register of members for a certain period, from one wee to a month, during which no transfer of shares is registered. Only those shareholders whose names appear on the registrar after the book closure are eligible to receive dividends and bonus shares and entitlement to rights shares. After the book closure shares are quoted ex-dividend, exbonus (if bonus has been announced) or ex-rights (if announced) prices, which carry xd, xb and xr after the figures. Dates of book closure are announced in financial newspapers and journals. When buying shares it is prudent to ask the broker what the book closure dates are. Delay in lodging share transfer forms with the company may sometimes result in the loss or dividends, rights, or bonuses.

Bonus Issue When a companys FREE RESERVES are high, it may choose to capitalize part of it by issuing bonus shares to existing shareholders in proportion to their holdings, to convert the reserves into equity. Bonus shares are issued free of cost, but since the number of shareholders remains the same and their proportionate holdings do not change, bonus shares do not improve the shareholders ownership of he company. After an issue of bonus shares the price of a companys share drops, more or less in proportion to the issue. However, since the dividend rate is often maintained, the shareholders gets a larger yield on the increased holding and when the share price APPRECIATES, he makes further gains. Broker A member of the stock exchange who is licensed to buy or sell shares on his own or on his clients behalf. He charges a commission (brokerage) on the gross value of the deals. Commission brokers simply execute buy or sell orders against a commission. Full service brokers simply execute buy or sell orders against a commission. Full service brokers offer facilities such as safekeeping clients shares and bonds, offering investment advice, planning clients portfolios of investments, managing clients portfolios and offering credit when a client is buying on MARGIN. Book Value 1. The value at which an asset is carried on a balance sheet. Since the asset is subject to depreciation, the book value is lower every year. Cost minus accumulated DEPRECIATIN will thus show the book value of an asset. 2. The net asset value (NAV) of a companys shares. Take the total assets of a company (equity capital plus accumulated reserves) and deduct current liabilities, long-term liabilities, and preference shares. What remains is shareholders fund. Divide this by the number of shares issued. The result is the book value of a share. Buy Back Repurchase of convertible or non-convertible debentures or the non-convetible part of partly convertible debenture before the stipulated period, at par or at a discount, by companies or banks. Buy back promises. However, should be lightly taken, as companies devise methods to keep the sellers at bay. It also means the buying back of its shares by a company from its investors at a price which is satisfactory to the investor. It may occur at the time of a takeover, or when the company is floated publicly. Buying back May be also resorted to when a corporation wishes to reduce the number of its shares in the market, either to increase the return on the shares till in the market or to eliminate threatening shareholders. Buyout Buying the controlling shareholding of a company to take over its assets and business. A buyout can be made through negotiations or through ACCUMULATION of shares from the stock market or purchase of shares of a major shareholders. When money is borrowed from financial institutions to finance the purchase it is called a leveraged buyout, in which case the loan is repaid from cash generated by the companys business or from the sale of its assets.

Capital The money with which a company runs its business is its capitals, obtained in two ways : by issuing shares, and by borrowing. The maximum amount of capital that a company is allowed to raise is its authorized capital, out of which the maximum it can raise by selling shares is its shares capital. The company may choose to raise the entire share capital in the first instance, or it may choose to raise part of it. The number of shares that a company chooses to sell is its issued capital, all or part of which may be subscribed by shareholders. It than becomes subscribed capital, which is also called paid-up capital. Capital Market Sources From which long-term capital is raised for the setting up the sustained growth of companies. The stock exchange is a part of the capital market, not only because it readily provides money for new or existing ventures, but also because it helps investors to trade in their shares and maintains the liquidity of investments. Investment in further public and rights issues, convertible and non-convertible debentures, therefore, become an attractive proposition and companies are able to raise the resource they need. The capital market is distinct from money market banks and lending institutions which provides short term finance. Capital Gain Profit arising out of the sale or transfer of an asset. Shares in companies, If these have been held for over a year, qualify for long-term capital gains charged at a flat rate of 20% of the gains, reduced by the indexed cost of acquisition. For any other asset, to qualify for long-term capital gains it must be held for over three years. Short-term capital gains for shares arise out of holdings for less than a year, and in the case of other assets, less than there years. Such short-term gains are regarded as current income and taxed according to the income slab into which they fall. Capital Loss Loss incurred when investments are sold at a price lower than their purchase price. In the case of shares, if the sale is within a year of the purchase, it is a short-term capital loss; fi it is after a year long-term capital loss is sustained. In Income Tax returns longterm capital losses can only be set off against long-term CAPITAL GAINS, whereas short-term capital losses can be set of against short-term capital gains or against current income from other sources. Capital Reserves These arise out of undistributed profits of a company, i.e. not distributed as dividend to shareholders. These reserves include profits on revaluation of capital assets and share premium (which is shown in a separate share premium account). Capital reserves are undistribuatable as dividends, but can be converted into permanent share capital by way of bonus issues. Capital Structure of Companies The capital of a new company consists of issued and subscribed equity shares, redeemable preference shares, and secured and unsecured loans. When the company is making profits that part of profits remaining undistributed among the shareholders is transferred to reserves and becomes part of the capital structure

Cash Cow A share which yields a consistently high rate of dividends. Also, a currently profitable business, but one which does not have very bright growth prospectus and is therefore used to fund other enterprises. Central Depository Bangladesh Limited (CDBL) is a public limited company that operate and maintain the Central Depository System (CDS) of electronic book entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank. Circuit Breaker A system to curb excessive speculation in the stock market, applied by the stock exchange authorities, when the index spurts or plunges by more than 5%. Trading is then suspended for some time to let the market cool down. Although introduced in November 1992, it was used for the first time in the Bombay Stock Exchange on Tuesday, 9 March 1993 when the Sensex declined by more than 5% from the opening level, i.e. from 2451.20 to 2318.26. Closed-end-Fund A mutual fund which owns a diversified portfolio of investments, but which, after the initial issue of shares cannot sell more shares in the primary market. Examples are Mastershares, Canshares, Cangrowth, etc. Shares of these are traded in the stock exchange and usually have a market price different from their NET ASSET VALUE. Cost-Benefit Analysis Comparing the cost of a line of action and the benefit to be derived from it, e.g. raising a bank loan against securities to buy equity shares. Assuming that the interest rate is 21%, one will enough to outstrip the cost. Companies have to constantly perform this exercise to determine the benefit of alternative courses of action against a certain cost. Correction: A short and sharp reversal, usually downwards, in the price of and individual share or shares in general. Corrections usually occur during any long-term move upwards or downwards, as share prices seldom move straight up or down. Credit Rating The need for ascertaining the creditworthiness of companies and financial institutions which approach the public for loan funds gave rise to the first ever credit rating agency, Standard and Poors, in the United States in the 1860s, and in 1909 came Moodys to assess the creditworthiness of US banks. In India the first credit rating agency came up only in 1987, when the Credit Rating Information Service of India Ltd (CRISIL) was set up by the UTI, ICICI, LIC, GIC and ADB, among others. Its task was to rate the debt instruments of Indian Companies in the matter of timely payment of interest and principal on debentures, fixed deposits, short term instrument like commercial paper, etc. The objective was to give the investor the opportunity of informed choice. Credit rating is not a buy or sell recommendation, but merely creating a risk awareness

among investors. The better companies are already using the rating symbols in their prospectuses for debt instruments, although their use is not yet mandtatoy, as it is in the US , where the rating of two agencies is required. Rating is assigned to a company after an evaluation of a host of factors like industry risk factors, market position of the company, its operating efficiently, the legal soundness of the prospectus, the companys accounting quality, its earning protection adequacy of cash flow, its financial flexibility, its management quality, its capital adequacy, its asset quality, liquidity management profitability and financial position, interest and tax sensitivity, and many other pertinent details. The evaluation is made by a team of highly professional people. Cyclical Shares Shares which rise and fall in price with the state of the national economy, of such industries as construction, automobiles, cement, engineering; or those affected by international economy, such s shipping, aviation, and tourism; also shares which are affected by natural phenomena, like fertilizers and tea. Non-cyclical shares would be drugs, insurance, basic foodstuffs and many consumer products. Daily Margin An amount, to be decided by the stock exchange, to be deposited by a member, on a daily basis, for the purchase or sale of securities. The amount is to be deposited at the stock exchange. The margin is imposed to curb excessive speculation. Debentures A long term instrument of debt, called bond in the United States . A debenture holder is creditor to the company who loans funds for a period of 7 -10 years against a fixed rate of interest. After the stipulated loan period the debentures are redeemed, i.e., the loan is paid back, sometimes with a very small premium. Debentures are generally secured against the companys assets. Convertible debentures can be either fully or partly converted into a certain number of shares, usually at a premium, after a stated period of time. Convertible debentures may carry a lower rate of interest than nonconvertible debentures which are redeemed after the stated period. A very conservative investment; there is little risk but also little prospect of appreciation. In the absence of an exit mechanism, and a properly organized secondary market where they could be easily traded, they are virtually illiquid investments. Deflation Opposite of inflation, it is a reduction in national income and output, accompanied by a general fall in prices. it can be brought about by reduced imports, higher taxation, and high interest rates, among other measures. During a deflationary period the stock market usually suffers from DEPRESSION. Delisting Striking off a companys name from the OFFICIAL LIST of a stock exchange so that the companys shares are not traded. It charges the status of the company; from a widely held and traded company it becomes an unlisted company with higher tax rates and higher borrowing costs. The listing agreement between a stock exchange and a company requires regular publication of the companys financial results and meeting such obligations as timely issue of allotment letters, share certificates, payment of dividend and interest and timely redemption of debentures. These are the companys post issue responsibilities; the pre issue conditions have been met before the listing Dilution of Equity Decrease

in the ownership value of a share as a result of increasing the number of shareholder by converting debentures or any other long term loan into shares or issuing fresh shares, at par or at a premium, to the public, without a corresponding increase in the assets of company. Dilution lowers the book value and earnings per share and is not beneficial to existing shareholders, as bonus and rights shares can be. Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.[1] When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. Earnings Yield The net profits of a company divided by the total market price of its shares. It is distinct from dividend yield, which relates to distributed profits only. The earnings yield of growth companies is generally low, as their high share prices have taken into consideration (i.e., discounted) their future profits. Conversely, a high earnings yield may indicate that the market price of the shares is falling because investors do not see much future growth in the company. Earnings per share (EPS) Are the earnings returned on the initial investment amount. Equity Shareholders They are the owners of the company, sharing its risks, profits, and losses. They have a residual claim on the earnings and assets of a company. They are paid their share of the companys profits after all other claims are met, and in the event of the liquidation of the company they share whatever is left of the company after all its creditors have been paid. They enjoy limited liability, i.e., liability only to the extent of their shareholding. Only equity shareholders are entitled to vote at the companys meetings, thus controlling the management. If the company prospers, it is the equity shareholders who is the greatest gainer. EGM-Extraordinary General Meeting Any general meeting other than the ANNUAL GENERAL MEETING, called to obtain shareholders consent to under decisions, such as on takeovers and amalgamations, approval for an expanded equity base, large scale borrowings, sudden resignation of the Chief Executive and the appointment of a new one, induction of a new Director into the board, etc. Financial institution Money management company or corporation which collects funds from the public and invests or lends to borrowers. These are of two types: those which do not accept deposits but sell a product, such as life insurance policies or units in a unit trust or shares in mutual funds; other which accepts deposits from the public for a fixed periodic return. The money that is collected by either is invested in company stocks, bonds, short term money market instruments, real estate, and other profitable operations. Some of these institutions have very large funds and can influence stock prices considerably. They are the largest players of the stock market with honest money. Financial Structure

Distinguished from capital structure of a company which includes only long term debt and equity, the financial structure of a company is revealed on the right hand (liabilities side of a companys balance sheet, which includes all the items which finance the assets (left hand side of the balance sheet): current liabilities, long tem liabilities, and shareholders equity. The financial structure I influenced by the growth and stability of sales, market competitions, the quantum of profits, the attitude of the short term lenders, and eh efficiency of the companys management. The financial structure helps take LEVERAGE decisions. Fully Diluted Earnings Per Share Earning per share after accounting for all rights, bonuses, and issue of convertible debentures during a period. Fully Paid Share Capital Share capital whose full value has been realized from the investors, as against partly paid up share capital where investors have yet to pay one or more calls. Fundamental Analysis Scientific study of the basic factors which determine a shares value. The analyst studies the industry and the companys sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the companys management, compares the company with its competitors, and then estimates the shares intrinsic worth. The fundamental analysts tools are FINANCIAL RATIOS arrived at by studying a companys BALANCE SHEET and PROFIT AND LOSS ACCOUNT over a number of year. More effective in fulfilling long term growth objectives of shares, rather than their short term price fluctuations. Glamour Shares Shares of companies very popular with individual and institutional investors, who are happy to have them in their portfolios. The glamour has been achieved by consistent above average growth in sales and earnings over a considerably period. A glamour stock is often a blue chip, but its essential characteristic is its high earnings growth rate. Going Private Change from public ownership of a company to private ownership either by the company repurchasing all its shares, or by a private buyer doing so. This usually happens when the company isnt doing well and the market prices of its shares has fallen below their book value, making it possible to acquire the assets cheaply. Sometimes the management itself will do so to fend off takeover threats. Gross National Product (GNP) The total value in money of all finished good and services produced in an economy in one full year, and all net property income from abroad. The GNP growth rate is one of the most important ECONOMIC INDICATORS of a countrys health. The inflation adjusted version of the GNP is called the real GNP. Income Shares Distinguished from growth shares, these have usually a low P/E, and a low price. Yet these yield fairly good dividends, sometimes equaling or excelling the rate of return from fixed deposits, etc. The companies follow a policy of high payouts (See PAYOUT RATIO), and consequently have low reserves for growth. Leasing company shares are foremost among these, for some yield dividends to the extent of 20% and above. Their

prices move within a narrow range, and expect before bonus issues tend to remain low. Insider Trading An illegal activity in which persons in a company having confidential information, such as expansion plans, financial results, takeover bids, etc., take advantage of such information to make a profit on the stock exchange by buying or selling shares. Institutional Invest Mutual funds, Unit Trust, Insurance Corporation of India , banks, and other large institutions which invest their members money in shares and bonds, re institutional investors. Since they trade in large volumes, they may play a supportive role when the share market is bearish. When ordinary investors, and even speculators to a certain extent, shy away from the share market, it is the institutional investor who often accounts for the bulk of the trade done on the stock exchange, over a sustained period. The absence of institutional investor sin a bear market can have damaging results. In view of their often substantial holdings they can play a major role in influencing company policy and in takeover bids. They have professional analysts and advisors, and can usually read stock market trends much better than individual investors. With their larger holdings they are often represented on the board of directors, and can influence company policy. IPO Initial Public Offering; new shares offered to the public in the PRIMARY MARKET. IPOs are sometimes preceded by very liberal bonus issues to existing shareholders as a reward for their faith in staking money when the venture was new. Issue Price It is the price at which new issues are offered to the public, at par, or at a premium, i.e., at a price above the face value. The issue price is fixed in consultation with the lead manager, which may be a bank or a financial institution. If there is a premium, the company is required to state in the prospectus for the public and in issue advertisement as well what premium the erstwhile CONTROLLER OF CAPITAL ISSUES would have permitted. The trend now is to fix a premium at as high a level as the investors can be made to accept, as if premium is a matter of company prestige. Liquidity It is the state of having cash, or possessing assets which can be quickly converted into cash. However, at throwaway prices almost any asset can be turned into cash. To be properly liquid, or to have high liquidity, an asset must be convertible into cash at its fair market price. When it refers to a stock it means that there are enough units of it to make large transactions possible without a substantial support or drop in its price. A Company which has issued a large number of shares has liquid stock in the market. Liquidity Ratios The measure of the solvency of a company and its ability to meet its debt obligations on time. The tow common ratios are: 1. CURRENT RATIO, which equals current assets divided by current liabilities; and the 2. QUICK RATIO, which equals current assets less inventories divided by current liabilities. Listed Shares Shares of companies which are registered by a stock exchange for trading on its floor. They have a quotation on the official list of the stock exchange. Listed shares have the

following advantages: (1) They are traded in the stock exchange, which is a fair market place. (2) They are liquid. (3) The price is determined fairly. (4) There is continuous reporting of their prices. (5) Full information is available on the companies. (6) There are strict regulations for the protection of those how buy and sell shares on the stock exchange. A share may belisted on more than one stock exchange. Also, a share may be listed, but very infrequently or not at all traded (e.g., of closely held companies) Locked In Shares which cannot yet be sold because the condition of offer stipulates that the share be held by the allottee for a minimum period, usually three years. Locked in shares are often devalued by market cycles, i.e., when a bear cycle sets in, the profits disappear; but so dies the feeling of helplessness of the investor. Manipulation Artificially rising or lowering the price of shares, either alone, or in collaboration with others, by creating an appearance of active buying and selling. IIIegal. Margin Account An account with a brokerage firm which will allow the client to buy shares with money borrowed from the broker. Margin requirements can be met with a deposit in cash or shares. Margin Buying Buying some shares with cash, and paying for additional shares by borrowing from the stockbroker. For this a client has to open to a margin account. There are regulations on the limit up to which shares can be bought on the margin, and that limit may be changed form time to time. If the margin requirement is 585%, it means that the investor has to pay 55% of the value of purchase in cash, and can borrow only 45% of the total sum required. Market Capitalization The total market value, at the current stock exchange list price, of the total number of equity share issued by a company. Market Lot A fixed minimum number, in which or in multiples of which, shares are bought and sold on the stock exchange. For shares whose face value is Rs 10, the marketable or trading lost may be 50 or 100. Fir Rs 100 shares the market lot is usually 5 or 10. Companies may, however, decide on other lots, such as 1 share for RS 500, although it is now rare. Any number of shares less than the marketable lot makes an odd lot, difficult to buy and disadvantageous to sell. When companies issue bonus or rights shares in less than 1:1 ratio, odd lots are often the result.

Market Price The last reported price of a share at which it was sold on the stock exchange. Merchant Bank Although historically merchant banks, as distinguished from commercial banks which deal with the general public, have been concerned with import and export trade, they

have recently expanded their activities by raising finance, at home and abroad, for industry including high risk hire purchase financing. These banks also float new debentures and shares on behalf of companies, or underwrite them. They are increasingly involved in takeover bids and mergers, often tendering specialized advice to the bidders. Merger An amicable getting together of two or more companies to form one unit, for increased overall efficiency. The shareholders of merged companies are offered equivalent holdings in the new company, and old employees are generally retained. TAKEOVERS, which are quite another matter, generate a lot more heat an illwill. A horizontal merger combines direct competitors in the same products and markets, while a vertical merger combines supplier and company or customer and company. Moving Average An average of share prices for specified periods one week, a fortnight, a month, or a year or years and showing trends of price movements, rather than daily fluctuations. For example, a weekly moving average will take a weeks prices till yesterday, and for tomorrows average it will drop the earliest day and include today in its stead. Multinationals Very large business corporations with subsidiary companies located all over the world. Their structure is global, and although they are registered in one country, their allegiance is one of convenience. The advantages of such corporations usually are international marketing, large scale research and development, product image and goodwill; while the disadvantages are business risks of operating in unfamiliar, and sometimes hostile, environment. To this is added political risk, of restriction of activities, of seizure of assets, of expulsion. NAV Net Asset Value, which is the value of total assets less liabilities on the date of valuation. It represents the net worth of the company. Mutual funds periodically publish he NAV of their units or shares; this is the market price on that particular date of the net assets (i.e., less all liabilities) of the fund, divided by the numbers of units or shares outstanding. The market price, however, may be more or less than the NAV. For funds which themselves redeem the units or shares, the redemption price is less than the NAV. Negative Equity An asset which has a lower market value than the sun borrowed to purchase it. The asset may have been acquired when prices were high. Odd Lot In the stock market shares are generally bought and sold in MARKET LOTS, which are easy to trade. Any number of shares less than the market lot makes an odd lot. Odd lots typically arise from BONUS or RIGHTS issues. Apart from the difficulty in buying or selling odd lots, there is another disadvantage: you may have to sell an odd lot at a considerably lower price than that quoted for a market lot. There is, however, some good news. The government has now advised all listed companies to form a trust to deal in odd lot shares. The trustee will sell shares only of that company, through brokers, and not indulge in independent trading. The company will send the rights and bonus shares of the scrip to the trustee, and when the trustee has consolidated them into marketable lots he will go to a recognized broker dealing in the shares of the company.

The holder of the scrip will pay a small service charge and the usual brokerage. Overbought Term used in TECHNICAL ANALYSIS to indicate a sharp rise in the price of a share or shares as a result of hectic buying by investors and speculators in the hope of further rise. An overbought share or market is prone to an imminent CORRECTION, as there are few buyers left to push the price up any further. Oversold A term used in TECHINCLA ANALYSIS to indicate that the price of a share or shares has fallen too fast as a result of excessive selling and there are few sellers left. An oversold share or market is prone to an imminent rise in price. An oversold situation can be detected by a GAP in which the opening price is considerably below the closing price of the previous trading day Overheated Market A stock situation in which too much money is chasing too few shares, leading to sharp price rises, and frequent GAPs. This is the last phase of a bull cycle and it usually portends an imminent onset of a bear cycle. Overvalued Shares Shares which have caught the investors fancy, and who therefore are willing to pay a price for them which is not justified by their EPS (earning per share) or P/E ratio. Justifiably high priced shares can become overvalued as a result of a companys fall in profitability, the emergency of competition and the loss of market share, prolonged labour unrest, or foreign exchange fluctuations. Overcapitalization Having more capital than a company needs for business. If it is a leveraged company, it will have an unnecessarily high interest burden; also, its profits, by way of dividends, will be thinly spread among the shareholders. The remedy lies in paying off long term debts or investment or buying back the companys own shares from the market. Over the Counter Market of OTC Market Local name OTCEI, or Over the Counter Exchange of India; a market where shares which are not listed on the stock exchange are traded. These shares are traditionally those of smaller companies which do not fulfill the listing requirements of a stock exchange; however, companies which prefer to have their shares traded on this market may do so. A perfectly legal market. See also OTCEI. Paid-up Capital Capital acquired by selling shares to investors, as distinguished from capital accumulated from earnings or from secured or unsecured loans. Paid-up Share A share whose issue price has been paid in full. In the Indian new-issues market seldom do companies ask for the share price in full with the application. Often it is half with the application, and the rest on allotment. Sometimes, however, when the price is high, thee may be part payment with application, part on allotment, followed by one or two calls. The last calls. The last call, before the share is fully paid up, is the final call. Partly paid shares are traded in the market. The buyer then has to respond to subsequent calls. Panic Selling

A condition of the stock market in which not only inexperienced investors, but also sturdy bulls, take fright and start selling. It may be caused by sudden unfavourable news or rumour, or a RANDOM WALK by share downwards, or simply, in bear market conditions, the absence of financial institutions from the market. P/E RATIO: The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years,which can be interpreted as "number of years of earnings to pay back purchase price", ignoring the time value of money. In other words, P/E ratio shows current investor demand for a company share. The reciprocal of the PE ratio is known as the earnings yield. The earnings yield is an estimate of expected return to be earned from holding the stock.P/E ratio=present mkt Price per Share/Annual Earnings per Share Portfolio Combined holding of many kinds of financial securities shares, debentures, government bonds, Unit Trust certificates, and other financial assets. Making a portfolio is putting ones eggs in different baskets with varying elements of risk and return. Reducing risk by diversification and maximization of gains are the primary objects of making a portfolio. Portfolio Manager A professional who managers other peoples or institutions investment portfolios with the objectives of profitability, growth, and risk minimization. He is expected to manage the investors assets prudently, and chooses particular investment avenues, such as cash equivalents, real estate, bonds, shares etc., appropriate for particular times, aiming at maximization of profit. Preference Shares So called because these have preference over equity shares in the matter of distribution of post tax profit, and have a prior claim on the assets of the company in the event of liquidation. In terms of risk, these are less risky then equities, but more risky than secured debentures which precede them in the distribution of the companys funds, and in the event of liquidation, which are paid off before preference shares. Preference shares are entitled to a fixed dividend, and cumulative preference share retain their retrospective claim on dividend when the company is not in a position to declare any dividend. Sometimes these shares are convertible into equity shares after a stated number of years, thus enjoying assured earnings while the company is getting established, and high earnings when it has established itself. When preference shares are redeemable, the company pays off the shareholder on a certain date, or issues equity shares of the value, but when they are irredeemable, the shareholder gets the fixed dividend in perpetuity or as long as the company lasts. Preference shareholders may or may not be given voting rights; they can usually only vote if their dividends are in arrears. Preferential Allotment Preference given to existing shareholders of a parent company or group companies when shares are offered to the public in a newly floated company, as a sort of reward for belonging to the family. The application forms are different and clearly marked as preferential. Some allotment may be expected.

Premium Issue The issue of shares at a price above the face value of a share. The sum charged above the face value is the premium. This premium is supposed to be determined by the following factors: the current book value of the share, the EPS, and the average market price over the last three years. Usually issued by successful companies whose share values are high on the stock exchange, although now more and more dark horses are appearing on the premium market. One should not rush to invest simply because a premium is charged on an issue, or by the issue, or by the size of the premium. Why the erstwhile Controller of Capital Issues allowed some of these hefty premia is perhaps the most insoluble mystery of the Indian stock market. Companies with established track record of more than five years are now allowed to make premium issues at their discretion. However, they must mention the premium the erstwhile CCI would have allowed according to his formula. Private Placement Shares can be sold to institutional investors on a private placement basis. When they are offered to a favoured few, they are usually restricted shares, and cannot be sold in the marketplace for some specified time. Unlisted shares are also offered on a private placement basis. Such shares may be quite difficult to sell. Profit and Loss Account A statement of account of the profit and loss of a business during the accounting period. It summarizes the income, costs, and expenses of the company over the period, and together with the balance sheet, constitutes a companys financial statement. Profit Before Tax to Sales Ratio Profit before tax divided by net sales and the sum multiplied by a hundred. This is a useful indicator of how efficiently the company is being run. Compared to pervious years, if the ratio falls, the companys costs must have escalated or its sales dropped. If the ratio is higher, it means that either the company has reduced its costs relative to sales, or that the sales have picked up. Ratio Analysis A study of figures in a companys financial statements helps an analyst to arrive at some important ratios, such as quick ratio, debt to equity ratio, P/E ratio, and many others. These are then studied in relation to one another and conclusion drawn on the companys health. An important, but not the only, tool for fundamental analysis . Record Date For the purposes of dividend distribution and entitlements to BONUS or RIGHTS ISSUES, a company fixes a date on which a shareholder must officially own shares to qualify. If a share has changed hands after the declaration of dividend, bonus, or rights before this date but the transfer has not been entered in the register of the company, the transferee can get the benefit of the dividend etc., only through the stockbroker. Reserves The constitute part of the capital of a company, other than the share capital. Reserves arise out of the retained profit and share premium, if any, charged. These are surpluses not distributed among the shareholders. Certain kinds of reserve cannot be distributed by way of bonus, or subsequent dividend, e.g. share premium account or capital redemption reserve. Surplus profit may also be earmarked for special purposes, such as

reserves for obsolescence of plant. Reserves which are held as retained earnings or revenue reserves can be distributed to shareholders as dividends, while capital reserves can be issued as bonus shares and converted into share capital. Reverse Merger Merger taking an opposite direction; a strong company merged with a weak one, taking the weak companys name. Not a common occurrence, but happens once in a while. Rights Issue Issue of shares at par or at a premium by an existing company to its shareholders in a certain proportion (and additional shares, if available) to their holdings, as a matter of their right to receive preferential treatment. An existing shareholder, instead of subscribing to such an issue, can let his rights lapse, or renounce his rights in favour of another person (free, or for a consideration) by signing the renunciation form. The renouncer may or may or may not have the right to apply for shares additional to his entitlement, depending upon the terms the company attaches to the renunciation of rights. Selling Out The sale by a broke of securities bought on behalf of a client who refuses to take them, usually because the price has fallen. The broker sells them at the best possible price and realizes the diference between the two prices from the client. See BUYING IN. Selling Short Sale of Shares, which he doesnt possess, by a speculator. He usually borrows the shares from his stockbrokers, promising to replace them at a future date, hoping that the price will fall by then. If the price falls, he buys the shares at the lower rate, and makes a profit on the difference. If the price has risen on the other hand, he has to buy the shares at the higher price, and sustains a loss. Share Capital Capital with which a company is started, consisting of shares issued to investors. At the start of a company, it is authorized to issue ascertain number of shares amounting to a certain sum of money. This is the authorized share capital. This may be raised subsequently by a resolution approved by the shareholders. However, not all of the initially authorized share capital needs to be issued. That part which has been issued is called issued share capital or subscribed share capital. Again, the subscribers to the share capital need not pay all the money at once. If the company chooses to ask for only a part of the money; the shares are called partly paid shares. Or called-up capital. The shares are fully paid when the full value f the shares is collected. Rights issues and bonus issues all add up to the share capital. Shareholder A person or a legal entity who owns equity or preference shares of a company. The proof of his ownership is the share certificate, which he may hold in multiple numbers, each certificate comprising a certain quantity of shares. Shareholders Equity A term used in a companys financial statement to identify its net worth, which is its residual value after all its liabilities are subtracted from its assets. The net worth comprises the face value of all the shares, equity and preference, plus capital surplus earned by way of issuing shares at a premium, and undistributed, retained earnings after dividends have been paid.

Shareholders Rights Since a shareholder is one of the owners of the company, he has a right to participate in the policy decisions of the company and the right to vote at such meetings. He has the right to appoint the auditor, and it is to the shareholder that the auditor presents the annual audit report. The shareholder is also entitled to receive his share of profits made by the company in the shape of dividends, and if the company chooses to capitalize part of the reserves by issuing bonus shares, the shareholder will receive such shares according to his entitlement. All this is a theoretical, however. Ordinary shareholders, even with a few thousand shares, have no say against what the large shareholders. Such as promoters, financial institutions, government nominees and allies of the board of directors decide to do. In exceptional cases they can make a nuisance of themselves at company meetings and obtain small concessions. Share Premium An amount in excess of the face value of a share charged by a company on its share issue. The premium is supposed to represent the high value of the share and its bright prospects: too often, however, it is the companys own perception of its worth, which the market doesnt support and show its opinion by bringing down the price below what the company has persuaded shareholders to part with. Share Transfer When shares are bought on the stock exchange, the broker will in course of time, give the buyer the certificates along with share transfer forms. These forms will have the transferors attested signature. The buyers of the shares, the transferee, will then have to fill in these forms, affix share transfer stamps (1/2% of the market price of the shares on the date of application or the last quoted price), and sent the certificates for registration in the buyers name. Sometimes the companys share transfer department will do it, sometimes data processing firms are engaged. If a transferee doesnt know the name of the transfer agent, he should send the shares to the registered office of the company. The act of transfer is done with varying degrees of efficiency, from total negligence to reasonable promptness. When one sells shares, the broker will supply share transfer forms, one for each certificate, which have to be filled in at the appropriate places (transferors name or names in full, as appearing on the share certificate, transferors signature in accordance with that maintained in the companys folios signature and address of a witness the best being the stockbroker) and handed over to the broker along with the share certificates. The transferee should note one important point. The transfer form must be lodged with the company or its transfer agents within one year of the date of issue of the form. The date is stamped on top of the transfer form. Also, but the broker will tell you this, the transfer must be lodged will in time for dividends, rights, or bonus issues. In view of the fact hat at any time there is a larger number of fake or stolen share certificates in circulation, an investor must make if a point to deal with authorized brokers only, and ensure that the transfer form has been stamped with the firms name at the back. The certificate itself may have been forged, or the transferors signature may have been. In either case the broker will sort it out, if he is a genuine broker, and not a sub or sub sub broker. For lodging a fake certificate or a forged transfer form, he investor can be held criminally responsible. Short Term In investment, accounting and taxes, a period of one year or les. In the money market short term means three months or less.

Small Investor He buys and sells in small quantities, is just about tolerated by the stockbroker (in that he is not physically thrown out), and although he may be a part of a very large crowd, his individual importance to the company or to the stockbroker is near non existent. He will apply for new issues, buy low priced shares in the secondary market (See BOTTOM FISHER) and will often be persuaded to buy dubious share which he will sell later at a loss. He is risk shy, impatient, and often not very well informed. For him safety lies in mutual funds, which will welcome him. Split US term for distribution of bonus shares, through which the ownership value of each existing share is split also occurs when a company decides to reduce the par value of a share by issuing a proportionate number of lower value shares, e.g., when a BDT 100 share is split and 10 shares for BDT 10 are issued in exchange. In a reverse split, 10 such BDT 10 shares will be exchanged for a BDT 100 share. Reverse splits are now uncommon. Stock Splits A US term, which means issue of bonus shares, which dilutes the value of each individual shares, as well as division of high priced shares into a number of low priced shares e.g., the splitting of BDT 100 X and Y shares into 10 each of BDT 10 shares. Stock splits increase the number a outstanding shares and create a wider and more active market for a companys shares. Sponsor In the flotation of a new issue, the names of bankers to the issue, and underwriters, is important, as subscribers often judge the merits of an issue on the quality of sponsorship. The bankers and underwriters are therefore in the position of sponsors. Spot Market Commodities market in which goods are sold against cash and delivered immediately. See FUTURES MARKET. Stockbroker A professional person or agency which buys or sells shares on behalf of investors for a fee. This, however, is a poor definition of the dimension of his job. A good stockbroker is a good friend, advising the client on what a good investment is, and warning him off risky and poor investment. He will tender advice, if asked, on the proper timing of purchase and sale, the right price, the right stock, and any other problems of stock market investment. Stock Dividend Distribution of additional shares (often authorized, but unissued shares) to current shareholders in lieu of cash dividends with a view a conserving cash within the company. To be distinguished from BONUS ISSUES. Stock Exchange A marketplace where shares change hands for a consideration. It is usually a building or part of a building, where members of the exchange, acting as brokers or dealing on their own, buy and sell shares, sometimes as BULLS and sometimes BEARS.The important

stock exchanges of the world are London , New York , Frankfurt , Paris , Tokyo , Hong Kong and Singapore . Technical Analysis A method of prediction of share price movements based on a study of price graphs or charts on the assumption that share price tends are repetitive, that since investor psychology follows a certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he studies investor and price behaviour. Tick Size The smallest increase or decrease in successive biddings of a stocks price allowed by the stock Exchange. At the Bombay Stock Exchange, after a reduction of the tick size in the non specified group of stocks in mid 1996, the volume of transactions spurted noticeable., The sizes now range from 5 paise to 50 paise as against 25 paise to Rs. 2 previously. Turnover The total revenue of a company derived from the provision of goods and services, less trade discount and other taxes. It also means the rate at which some asset is turned over, i.e replaced, in course of an accounting year. For example, stock turnover is the total sales figure divided by the value of the asset. The turnover rate indicates how fast a company can grow without further capital injection. Undervalued Shares Shares selling below their book value or the price earning ratio which analysts believer they deserve. There may be many reasons for this: the industry is out of favour, or the company has current labour trouble or it is not well known enough or, this is quite common, the company hasnt yet caught the investors fancy. Fundamental analysts often identify and recommend such shares before they become fully priced. Companies with undervalued shares are often targets of takeovers s their shares can be acquired cheaply. Underwriter A merchant bank or a financial institution which guarantees to buy some or all unsold shares of a new issue offered to the public. A number of underwriters may club together to buy the unsubscribed shares to sell them subsequently. A new issue of shares devolves on the underwriter only if a minimum stipulated number has been subscribed. Weighted Average Arithmetic means that takes into account the importance of each item making an average. For example, the prices of 32 scrips of an index will give one average, whereas the total sum at which each of the different scrips has sold in different quantities will give quite a different average. A stock market index uses the latter average, except that the market price of each of the scrips constituting the index is multiplied by the number of outstanding shares, and the weighted average arrived at.